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On Krugman's Epiphany
Paul Krugman is one of the leading “names” in economics today. There are reasons for his stature. He’s got a Nobel Prize, he’s an academic at a leading University, he writes for the NY Times, and not a week goes by without him being on some TV show or another. If you asked the average guy on the street to name an economist, there’s a good chance the answer would be - “Krugman”.
PK has been having a slow motion epiphany over the last month. He has posted four articles on a topic since December 8. (Link, Link, Link and Link) He has identified a “phenomenon” that is occurring in the US economy. This new, powerful force that he has stumbled upon, is keeping him awake at night. Clearly, PK is troubled by what he has uncovered. His words:
“It” has really uncomfortable implications. But I think we’d better start paying attention to those implications.
Are you worried yet?
PK drives home the point that what he has uncovered is not now in mainstream economic thinking. He admits that even he missed the signs that something was amiss in the world of modern economics:
Not enough people (me included!) have looked up to notice that things have changed.
Okay. What is it that PK has found hidden deep below the economic rocks that is causing him such fits? Grab onto your seats - this is big. PK has observed, for the first time in his economic career, the simple fact that technology has reduced the role of labor in the economy.
That’s PK’s epiphany? He just came to that conclusion in the last month? I’m thinking, “What planet has this guy been living on the past 10 years?” But then I realized PK has not been living on Mars, he’s been living in Princeton; amongst the Ivy.
Has PK not gone to a new mechanized distribution center like FedEx, UPS and Amazon have? Does he not know that it takes less printers to make the NYTs these days? Has he not been to a modern assembly plant that makes things with robots? How could he have missed the notion that technology was reducing the demand for human labor all these years? The only way that this could have been missed is if PK had his eyes covered and his head in the sand. He had this to say about his big new "find".
Mea culpa: I myself didn’t grasp this until recently. But it’s really crucial.
Forget about why PK has not connected these very important dots over many years; focus on why he's crapping in his pants over his new awareness. It’s simple math. Take two examples A) where Labor = 60% of GDP and B) Labor = 50% of GDP. If GDP = $16T, then A = 9.6T and B = 8T.
The problem is that Social Security (SS) taxes Labor at 12%. The difference between A and B ($1.6T * 12.4%) means that SS ends up with $200 Billion less in annual revenue.
PK went off and pondered his “discovery”. He did the A and B math, then he wrote:
If payrolls lag behind overall national income, this will tend to leave those programs underfunded
Duh….
Then PK went on to really stir the pot by suggesting that the Congressional Budget Office (CBO) was using a rosy long-term estimate for the critical Labor/GDP percentage in its projections. PK says:
CBO could very easily be quite wrong here, and will indeed be very wrong if the rise of smart machines plays out
What’s dawning on PK is that his vision of the future does not take into proper consideration the role that technology has today, and will play in the future, on labor employment. What he's looking at is a structural change; one that can’t be altered. He’s coming to the conclusion that Social Security doesn't “work” when there are not enough workers paying into the scheme. This is a remarkable conclusion from the most liberal economist out there.
Move on a few days and PK does some more deep thinking. He now realizes that the current expectations for future revenue for SS are unrealistic. He knows that the lines will cross more quickly than is now anticipated. He understands that this is a here-and-now problem, but he also has grasped that this is also a 75-year problem. So he comes up with a plan; simple yet elegant. He wants to tax the robots.
There would be no problem, at least in economic terms, by adding revenue (to SS) from dedicated taxes on capital income.
No problem? PK thinks it’s okay to charge 12% FICA taxes on a robot. OMG!
Actually, I don’t think that PK really believes that taxing investments in manufacturing technology is a good idea. The fact is, it’s a terrible idea, and PK knows it. If you want an economy to grow, and be globally competitive, you create incentives (tax breaks) for capital investment; you don’t create disincentives. Period.
I suspect that PK is slowly recognizing that he has put himself in a box. He has come to conclude that SS, as it is currently configured, is not viable. The villain is technology that reduces the long-term demand for labor. His solution, not surprisingly, is more taxes. But there is not a chance in 100 of taxes on capital investments to support SS (nor should there be).
PK is walking a plank, he’s getting close to the edge. When he goes over, he will bring with him a bunch of other liberal economists that believe that the SS “miracle” can be sustained. In his latest missive on this topic PK promises:
I’ll be writing more about this in weeks to come
I can’t wait.
Notes:
- PK is quite right that the CBO's assumptions regarding Labor’s share of future GDP are optimistic. I’m sure that the folks at the CBO read PK’s criticism. I doubt they were too happy about it. The question is, what will CBO do, now that a Nobel has challenged a basic assumption it uses? If the CBO were to re-gear its computers to reflect a lower long term role of labor in the economy, it would create a massive hole in America's entitlement programs.
- It’s going on five years now that I’ve been writing about SS and the CBO. There must be a few hundred articles of mine in the ether on these two topics. Again and again I’ve said the same thing. The assumptions are not realistic, the numbers do not add up when realistic assumptions are used, the outcome will not be what is now anticipated, and there will be a disappointment when reality sets in. Sorry PK.
Maybe I should get a Nobel, that, or maybe PK shouldn't have one…..
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Of course.
No one leaves a hundred dollar bill on the ground. Unless it costs more than 99.99 dollars to pick it up.
All assets and labor will be utilized if there is any gain to be made.
This labor surplus is a product of government, not technology
Krugman used to be an economist, but is now a socialist cheerleader and leftist clown. Very sad.
Socialist cheerleader and leftist clown for sure; economist not so much. Hayek and Rothbard were economists; Krugman doesn't measure up.
Ok Krugman, you did not need a degree in Economics to figure that one out Captain Obvious. Just take a look at all the nations that have employed robotics extensively and you will notice they have the highest debt levels. No human labor means more debt to pay the bills. Just take a friggin look at Japan. Now they are going to print, I say across the board devaluations for all those nations in debt. Yeah...and don't give the bankers time to exit.
All economists have been replaced by robots, when PK got his upgrade recently this realization leaked out of his anal cavity.
This is actually very scary shit...
I frickin despise that little troll Krugman, and for one can't wait til we here from him NO MORE. He can start a new career working as an EXTRA in the sequels to The Hobbit, little umpa loompa looking shit. Him and his cats can now go live out int the woods with some Toxoplasmosis, hell that prob why he is so Damn INSANE!!!!!
Ok I'm better now....
Have a Happy New Year all my fellow ZH'ers
A role as the hairy gimp dude in gay porn awaits PG. Squeel like a pig PG
Toxoplasmosis has been linked to high suicide rates....we can only hope.
Miffed:-)
I have a radical suggestion if you don't like what Krugman says: DON'T READ HIS COLUMNS.
There. Fixed. Simple.
You are welcome.
Anyone have Krugman's address? Someone should send him a copy of The Rise and Fall of Benito Mussolini. Paying particular attention to the final chapter.
Or how about a book on Joe Goebbels, another propagandist like Krugman. Joe Goebbels - My Life As A Liar and Propagandist for The Third Reich. How did Goebbels end up?
Let us not forget former Enron consultants like Paul Krugman; the lies they have told and what they have done to this country.
I'm a carpenter not an economist, but isn't SS only taxed up to a certain level of earnings? I understand the correlation with the drop in the labor participation rate, but is it correct to divide the gross by 12% when SS is not taxed on total earnings? Admittedly, I'm not the sharpest pencil in the box, and I would appreciate a little tutoring here. Thank you in advance for your patience
I think the cap is over $100k now so it pretty much includes all of the income of 98% or more of Americans. Whats really cool is that they want to take all of the caps off while also "means testing" the benefits. So much for benefits based on contributions, huh?
Good point.
One could apply the social security tax without an upper limit to all earnings or income, including non wage income, capital gains, etc.
Tax total national income, not just income from wages.
That is somewhat economically neutral as long as all other countries do it too
And you're probably fucking serious.
Somewhat
It's not like they're going to pay it out evenly. Most people who make more than minimum wage in their life will never receive back the money they paid into SS much less the value of the money they paid in.
Most low wage earners on average get much more back from social security than their contributions plus compounded interest (based on a long bond rate)
Smokers and blacks? Maybe not. But those are choices people make in life.
What shit you talkin', white boy? I never chose to be
a smoker.
Overall, SS has been precisely what Rosenfelt intended it to be: a gigantic, long-term forced loan to Gubmint Inc. It needs to go away, and it is going to go away. Rather soon.
"Smokers and blacks? Maybe not. But those are choices people make in life."
I see what you did there...
Give Bruce 20 years and he may be able to comprehend the implications to SS.
TIA for your patience.
Krugman: Just another sell- out. Maybe the reason he doesnt sleep at night is because he has a conscience? I doubt it though.
The replacement of labor by robotics and its effect on an economy is intuitive even to a PK. As a sell-out I propose that his "epiphany" is more related to his shamefull acceptance of bullshit BLS labor stats; he's embedded in this administration and he's making an excuse for the administraions unemployment statistical machinations of which people are now becoming aware.
Looks like he's trying to lay the groundwork for taxing the 'labor' of machines.
Got to keep the Rube Goldberg wealth transfer crony faux-capitalst system going.
PK doesn't have a Nobel. He has a Sveriges Riksbank Prize. Only idiots claim economists have Nobel prizes.
Water... Thanks for the clarification, it's always interesting to gain a bit of esoteric knowledge. Would I not be an idiot if I refrered Riksbank Economics winners as "Nobel" winners? God forbid I be called an idiot for such a thing.
Or the idiot Krugman called a "Nobel Prize winner" for merely expounding on anothers idea/formulation...lol.
Which-is-all-his-prize-was.
Krugman has never had an original idea in his entire life, he's a socio-economist, which is like saying, I feel for all the "little people" I've separated myself from, so I'll endlessly promote government programs, paid by you, for you!
I would be an idiot if I called PK an economist: I would owe real economists (Samuelson, Hayek and Rothbard) an apology for such transgression.
edit: Absolutely nmewn: PK completely butchered Keynes' concepts. Any originality would be in his misapplication of his mentor's economic philosophy; not to say that is worth a fuck.
Only leftists Scandinavian NWO idiots would give an evil moron like Paul Krugman any prize.
I'm not a leftist Scandinavian NWO type (let's see, did I leave something out?) but I think the Kroog should get a prize: the Nobel Prize for Talking Out Your Ass While Whorishly Sucking Up To The Bankster Overlords Who Control All The Good Jobs.
I have to know: What is it with all this Nobel Prize krapp? Who is on that committee? What does it mean to get a NO-BELL Prize? Why did they give O' Bomber a Nobel Peace Prize for running simultaneous war campaigns in Afghanistan, Iraq, Libya, Pakistan, Yemen and God only knows where else? I only hope Julian Assange lives to tell us about who we're killing now to make the world safe for Eric Holder.
See, I noticed that Nobel Peace Prize committee didn't give one to George "Scourge Of The Sunni Baathists" Bush. Okay, that seemed reasonable. After all, GWB did start the Predator drone strikes on goatherds in North Waziristan--but ONLY on specific KNOWN TERRORIST GOAT HERDERS.
His Holiness The Butcher of Mombasa is now raining Hellfire down on unsuspecting Pakistanis at a rate more than FIVE times what Bush authorized in his entire two terms, with no visible concern for collateral damage. And believe you me, Oliver Stone is none too happy about it:
http://rt.com/news/oliver-stone-us-orwellian-022/
The Deputy Governor of Sveriges Riksbank is a guy called Lars E. O. Svensson, who was a professor at Princeton from 2001 to 2009. He started his term at the Riksbank in 2007. (He was on leave from Princeton between 2007 and 2009.) He's also a long-standing member of the Royal Swedish Academy of Sciences, which are the people who formally appoint the Economics Prize winner. Svensson undoubtedly knows Paul Krugman personally. Krugman got his "Nobel" Prize in 2008, one year after Svensson came back from Princeton. Coincidence? I think not.
BK talks about Krugman's home New York Times above, and asks:
« Does he not know that it takes less printers to make the NYTs these days? »
So the CIA's Soviet-style 'Pravda' for America, still has a print edition? How quaint. The CIA's 'Operation Mockingbird' of press control, that includes the NYT, maybe helps subsidise it.
---
A few years ago I think Comedy Central visted the NYT offices, the comedian picked up the printed edition, and asked the NYT guy:
"Could you show me something in this paper, that happened TODAY?"
"So at the New York Times, you still think there is a MARKET for yesterday's news?"
---
And this makes me ask ...
Is regularly reading the CIA-sponsored New York Times, the reason Bruce Krasting is still a little naive about America? : - )
If you want more comedy - go to youtube and look up the sh*t on the NY Times writers strike aka The Guild (union) stike. They created these pathetic videos about how they are the finest writers. The sh*ts are all moaning because Pinch Sulzberger wants to push them into 401ks. The crap paper is bleeding red ink and these lying socialist propgandists think they deserve lifetime employment. They have no clue. Why anyone would want to read their drivel is beyond me.
All TV and Hollywood is trash. All newspapers are largely total garbage except maybe IBD and the UK Telegraph. The NY Times is a joke. The paper needs to take a dirt nap. If Bruce thinks it is worth reading then I lost respect for him. I laugh at idiots who go to places like Starbucks to read the NY Times. What a total waste of time and trees. I don't go to Starbucks but you see these arses posing.
The small paper in NY (Long Island?) posted the names and addresses of licensed gun owners. A blogger posted the names and addresses of the employees of this newspaper.
Someone should post Krugman's address so when the SHTF - we can go take his "Nobel Prize" away from him or tar and feather him.
The Krugster would look good in feathers.
I usually read 7-8 newspapers a day. The NYT is on the list. I like The Hill, love Zero Hedge, I go to many blog sites. I read tons of crap you get from governments, etc, when you sign up for RRS alert links.
All in, lets say I'm current on the news. I Don't think I'm naive about anything.
Bruce,
PK has had his Nobel for long enough and has "milked" it enough to realize the same monetary income as the original prize money several times over.
Since the Nobel Committee is less likely to realize the error of their ways than we are to see dinosaurs walk the Earth again ...
... let's pursue the idea of PK handing HIS Nobel Prize (including monetary award!) to you "in recognition of your early and penetrating insight into this crucial societal problem".
Seems fair to me.
The Sveriges Riksbank Prize in Economic Sciences is given out by the Swedish central bank. It is a prize given out by a central bank to economists who tell them what they want to hear. Other than being awarded at the same ceremony, the Nobel Committee has nothing to do with it.
+1
From Wikipedia:
The Nobel Memorial Prize in Economic Sciences, commonly referred to as the Nobel Prize in Economics, but officially the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (Swedish: Sveriges riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is an award for outstanding contributions to the field of economics, generally regarded as one of the most prestigious awards for that field. Although not one of the Nobel Prizes established by the will of Alfred Nobel in 1895, it is identified with them, and prizes are announced with and awarded at the same ceremony.
I hereby award the Karl Marx Memorial Prize in Economics to Paul Krugmam. The award includes $50 trillion Zimbabwean Dollars.
He deserves it.
Make that the Stalin Prize. I don't think KM was fond of the Rothschilds.
I'm still trying to define the difference between Federal Reserve and Federal Express.
In the end, it's all a bunch of guys I don't know and never will meet. And I should be impressed somehow?
Okay, that's not entirely true. Our regular Federal Express driver seems like a decent guy. But I'm not sure I trust him to print money for me.
The difference is that one of them earns the money it makes and the other makes the money it takes.
Let's just hope that the "smart machines" are a Hell of a lot smarter than Krugman.
Although, honestly, how could they not be?
Besides, unlike most Ivy League economists, I have yet to see a robot that can convince itself of its own lies.
hilarious...welcome to the party PK and BK!!!!
Right BK, doesn't have anything to do with shipping skilled jobs overseas, more competitive labor force (more people chasing fewer jobs, bidding wages down). It's all because of robots.
You bought into another Krugman lie. Idiot.
PK's life: the art of knowing less and less about more and more.
It took about 10,000 years for technology to wring the inefficiencies out of the Agricultural Age. Those jobs are gone.
It's taking about 400 years for technology to wring the inefficiencies out of the Industrial Age. Those jobs are not coming back.
When technology is done with the Information Age, about 2040, those jobs will be gone.
An intelligent person would see that technology should be making our lives easier: less work input producing far more wealth. Not so, whatever efficiencies technology produces, government grows larger, creates more waste and distortion, and proceeds to undo the benefits of technology. All for its OWN gain.
What PK is writing about is keeping government big, anti-freedom, and anti-progress, not letting technology make a person's life better.
the irony of it all is that, when you think about it, technology is ultimately deflationary. so, in order to keep the ponzi going once human population growth becomes stagnant (which it effectively has in the "West"), the technocrats need to invent all sorts of anti-efficienices just to keep the boat afloat.
wonder when the Krug will realize that, at a macro level approaching the steady state, technology and debt don't mix?
i'm guessing some of those efficiencies technology produces made it to the bottom lines of the corporations and individuals that owned them and stayed there. the richest pay tax rates less than those who earn wages (as bruce notes, capital needs tax breaks not increases). corporate profits are about 70% above their historical norm and the income of the top 1% as a percent of gdp is at a maximum equalled only in the late 1890's and 1920's. if corporate profits (sales less costs) are so high, someone is making up the difference. it is government deficits and consumer sector debt increases/depressed savings rates (partly because savings earn so little) that balance the accounting identity.
I support panarchism.
That would make all government revenue voluntary.